The finance ministry has turned down a suggestion that government mobilise funds for infrastrucure sector from non-resident Indians through special tax-free bonds. “It may not be a very viable plan as it could lead to losses at the time of redemption because of fluctuation in the Indian currency,” a senior government official said.

The government has already incurred such losses with the India Development Bonds and State Bank of India’s Resurgent India Bonds.

Besides, the finance ministry also had concerns about the proposed structure of the bonds. Moreover, there is a view within the ministry that NRIs can already invest here as a separate entity.

For instance, in the case of the Resurgent India Bonds, the finance ministry had to spend an addition Rs 900 crore when they were redeemed in 1998 because of the depreciation of the Indian currency. Overseas Indian affairs minister Vayalar Ravi and road transport and highways minister Kamal Nath had mooted the idea of floating infrastructure bonds in different currencies and denominations in order to allow NRIs to invest in core sector projects and facilitate greater inflow of funds into the cash starved sector.

A paucity of funds has made it difficult for the government to meet its $ 500 billion target for infrastructure investments in the Eleventh Five Year Plan. The Centre has been working on innovative financing schemes to bridge this deficit and has announced measures like take out financing and permitting infrastructure finance companies to issue tax-free infrastructure bonds. It is also working on allowing pension funds to invest in core sector projects.

In what will help generate the much-needed funds for infrastructure sector, the finance ministry has notified Industrial Finance Corporation of India, Life Insurance Corporation of India, Infrastructure Development Finance Company and non-banking finance companies lending exclusively to infrastructure sector will be eligible to issue tax-free bonds announced in the budget.